Arthur Hayes, co-founder of BitMEX and known for his bold predictions about the crypto market, has just offered a new perspective.
He suggested that the prolonged instability of the Japanese yen could inadvertently become a catalyst for a major price surge in Bitcoin (BTC).
Hayes warned that the recent weakening of the yen, coupled with the sharp drop in Japanese government bonds (JGBs), foreshadows deeper cracks in the financial system.
Hayes predicts that yen volatility could trigger a Bitcoin rally.
In his latest blog post titled “Woomph,” Arthur Hayes states that the weakening yen coupled with rising JGB yields signals structural pressure in Japan. This could force the US Treasury Department and the Federal Reserve to intervene.
He argued that such interventions would essentially inject more liquidation into the system , helping to ease pressure on US Treasury bond yields. If coupled with the Fed expanding its balance sheet, this could provide short-term support for risky assets, including Bitcoin.
According to Hayes, this injected liquidation will mechanically push Bitcoin and other large Capital Token higher in price , potentially helping them break out of their current prolonged sideways trading range.
This forecast comes amid significant pressure on the Japanese economy: the depreciating yen is driving up import inflation (as Japan is a net energy importer), while rising JGB yields are making government borrowing costs increasingly burdensome.
Hayes emphasized that without intervention, the problems of the yen could spill over into the US market, pushing US Treasury yields even higher and exacerbating the US's record peacetime budget deficit.
At the core of Hayes' optimistic view of Bitcoin lies the link between the depreciation of the yen, high interest rates, and global liquidation .
High JGB yields make Japanese businesses and investors less inclined to invest abroad, potentially triggering a negative spiral: soaring US bond yields, forcing the Fed to intervene.
Hayes specifically describes the intervention mechanism as follows:
The New York Fed creates new bank reserves by printing more USD to exchange for yen in the foreign exchange market, helping the yen appreciate gradually to avoid shocking the market.
The yen earned will be invested in Japanese government bonds (JGBs), thereby driving down yields and shifting interest rate risk to the Fed's balance sheet.
"The Yen Drama": A Weakening Currency and Rising Bond Yields
The Japanese yen has been under heavy pressure in recent months, depreciating sharply against the US dollar.
Hayes argues that the cause is the Japanese government's loss of control over the long-term portion of the bond yield curve, with JGB yields rising while the yen depreciated. This combination reflects a decline in investor confidence in the Japanese government's ability to protect the currency's value and control the deficit.
Due to its heavy reliance on imported energy, a weak yen directly drives up import prices, escalating the cost of living and complicating fiscal policy.
The Bank of Japan (BOJ) – the largest holder of JGBs – is facing a massive unrealized loss due to plummeting bond prices, further eroding market confidence.
This volatility has global implications, particularly for the U.S. “Japan Inc.” – a term referring to Japanese private investors – currently holds approximately $2.4 trillion in foreign debt , primarily U.S. Treasury bonds. If domestic JGB yields remain attractive, they could repatriate Capital , sell their U.S. bonds, and drive up U.S. borrowing costs.
Hayes noted that even though the Fed has cut interest rates a total of 1.75% since September 2024, yields on 10-year US Treasury bonds have still risen slightly due to persistent Dai and supply pressures.
A wave of selling of US bonds triggered by the yen could worsen the situation, diminishing the competitiveness of US exports as a stronger dollar makes American goods more expensive abroad.
Prime Minister Sanae Takaichi's push for economic stimulus packages and increased defense spending, including arms purchases from the U.S., has only exacerbated the problem. High yields make borrowing for these plans unfeasible without intervention.
Hayes predicted that the BOJ's decision to keep interest rates unchanged on January 23, despite the need to raise them, suggests that Japan likely sought support from the US to stabilize the situation.
If Hayes' scenario plays out, Bitcoin could surge as the Fed's intervention confirms the trend of expanding liquidation – according to The Wall Street Journal .
However, risks remain: without intervention, the yen could collapse, triggering global deflationary pressure that would be detrimental to the crypto market; or, with excessive intervention, the market could experience extreme volatility in the short term.
